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Why Is Booking Holdings (BKNG) Up 4.3% Since Last Earnings Report?

Zacks Equity Research

It has been about a month since the last earnings report for Booking Holdings (BKNG). Shares have added about 4.3% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Booking Holdings due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Booking Holdings Earnings Beat Estimates in Q3

Booking Holdings reported third-quarter 2019 non-GAAP earnings of $45.36 per share beating the Zacks Consensus Estimate by 1.1%. Further, the figure improved 20.1% from the year-ago quarter and 92.3% on a sequential basis.

Revenues of $5.04 billion improved 4% year over year and 30.9% from the previous quarter.

Solid momentum across merchant, and advertising and other businesses drove the top line year over year. Additionally, robust accommodation business drove the booked room nights number, which came in at 223 million during the reported quarter, up 11% from the prior-year quarter.

However, revenues missed the Zacks Consensus Estimate of $5.07 billion.

Continued softness in agency business remained a headwind. Further, the company faced sluggishness in airline tickets unit, which was down 2.5% year over year during the reported quarter.

Nevertheless, Booking Holdings witnessed robust improvement in rental car days that rose 8.5% from the year-ago quarter.

Further, secular growth trend in the online travel booking market and growing usage of mobile by travelers for their travel planning remain tailwinds.

Moreover, the company’s strong position in the international markets, growth opportunities in the domestic market, solid momentum across the global accommodation space and proper execution of its marketing strategies are major positives.

Top-Line in Detail

Booking Holdings generates bulk of revenues from the international markets, wherein the agency model is more popular. This is reflected in the merchant/agency split of revenues, which was 26.1/68.1% in the third quarter (previous quarter’s split was 24.9/67.7%).

Merchant revenues came in $1.3 billion, up 25% year over year. The company’s continued efforts toward improving of merchant business remains a positive.

Further, Agency revenues were $3.4 billion, down 2.9% on a year-over-year basis.

Advertising & Other revenues were $292 million (5.8% of total revenues), improving 13.2% from the year-ago quarter. These are basically non-inter company revenues from Kayak and OpenTable.

Bookings

Booking Holdings’ overall gross bookings came in $25.28 billion were up 4.1% year over year. Further, the figure was up 7% at constant currency from the year-ago quarter, which exceeded management’s guided range.

Additionally, gross bookings topped the Zacks Consensus Estimate of $25.26 billion.

Merchant bookings were $7.2 billion, up 36.5% from the prior-year quarter. However, agency bookings declined 4.8% year over year to $18.1 billion.

Operating Results

Adjusted EBITDA in the third quarter was $2.5 billion, up 5.2% from the year-ago quarter. As a percentage of revenues, the figure expanded 60 bps to 49.3%.

Per management, operating expenses were $2.7 billion, up 2.6% year over year. However, as a percentage of revenues, the figure contracted 80 bps from the year-ago quarter to 52.9%.

Operating income was $2.4 billion, increasing 5.5% year over year. Moreover, operating margin of 47% expanded 70 bps from the year-ago quarter.

Balance Sheet & Cash Flow

As of Sep 30, 2019, cash and short-term investments balance was $7.4 billion, up from $6.8 billion as of Jun 30, 2019.

At the end of the third quarter, Booking Holdings had $7.5 billion of long-term debt, down from $7.7 billion in the previous quarter.

During the reported quarter, the company generated $1.9 billion of cash from operations, increasing from $1.8 billion in the previous quarter.

Further, free cash flow was $1.8 billion in the third quarter. The company repurchased shares worth $1.3 billion during the reported quarter.

Guidance

For fourth-quarter 2019, Booking Holdings expects room nights booked to improve 6-8%.

Further, total gross bookings are anticipated to reflect year-over-year growth in the range of 0.5-2.5%. On a constant-currency basis, gross bookings are expected in the range of 2-4%.

The company anticipates adjusted EBITDA in the range of $1.21-$1.23 billion.

Non-GAAP earnings are expected in the range of $21.50-$22.00 per share.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -6.61% due to these changes.

VGM Scores

At this time, Booking Holdings has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Booking Holdings has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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